A bigger, badder NAMA in the offing
Published 25/11/2010 | 05:00
Could NAMA yet fulfil its destiny as a true 'bad bank'? While the idea of using NAMA as a general skip for bad loans was abandoned last year, the IMF/EU's desire to put the banks on a crash diet could make NAMA not just a skip, but a giant landfill site for bad loans.
NAMA was meant to be purely a compost heap where land and development loans went to rot (or be hoarded).
But now other types of loans could be placed there, further shrinking the banks and removing systemic threats in the process.
But what loans should be sent there? An obvious candidate would be loss-making tracker mortgage loans or SME loans.
Why? Well mainly for the simple reason that these loans are the ones the markets are worried about, so surely that would be the best place to start.
But it is all about scale and the loans that have the biggest potential to destroy the banks in the future are actually corporate loans.
In a worst-case scenario these loans could cause losses of €26bn, or 16.5pc of GDP, according to Goldman Sachs, though it doesn't believe this will ever happen.
Ultimately the only way to shrink the banks is through their loan books, but the bigger the loan books that move out of the banks the bigger the need to replace them with fresh capital.
Taking a narrow piece of just one loan book, for example recent mortgages that have fallen into arrears, might be the cheapest way to go and might also assure market watchers.
But do mortgage holders want to fall into the delicate embrace of NAMA?